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Why the fight for GMO labeling is (possibly) over

Why the fight for GMO labeling is (possibly) over

Ever since it became clear that Vermont’s law for mandatory labeling of foods containing genetically engineered ingredients would actually go into force this summer, the big question has been how many food companies would choose to label their products and how many would choose simply not to sell in Vermont.

There is a third choice which purveyor of canned fruits and vegetables, Del Monte Foods, announced recently. The company will eliminate all genetically engineered ingredients from its foods, obviating the need for special labeling. This won’t be too difficult since there are very few genetically engineered fruits and vegetables.

While the Vermont law is huge victory for the proponents of labels, the U.S. Congress could still pre-empt state labeling laws, something it failed to do earlier this year. But as more and more of the public demands to know which products have so-called genetically modified organisms or GMOs in them and as the number of products on grocery shelves with non-GMO verified labels increases, growers and processors may have no choice but to acquiesce. They may be forced by circumstances either to label their products (or automatically be suspected of trying to hide something for not doing so) or to eliminate GMO crops and ingredients for fear of losing customers regardless of what happens in Congress or in other states.

Nassim Nicholas Taleb, author of The Black Swan and other books on risk, explains why this is so in a draft chapter of an upcoming book called Skin in the Game. His investigation begins with why nearly every packaged drink in the United States is labeled certified kosher.

 

…click on the above link to read the rest of the article…

Austria Just Announced A 54% Haircut Of Senior Creditors In First “Bail In” Under New European Rules

Austria Just Announced A 54% Haircut Of Senior Creditors In First “Bail In” Under New European Rules

Just over a year ago, a black swan landed in the middle of Europe, when in what was then dubbed a “Spectacular Development” In Austria, the “bad bank” of failed Hypo Alpe Adria – the Heta Asset Resolution AG – itself went from good to bad, with its creditors forced into an involuntary “bail-in” following the “discovery” of a $8.5 billion capital hole in its balance sheet primarily related to ongoing deterioration in central and eastern European economies.

Austria had previously nationalized Heta’s predecessor Hypo Alpe-Adria-Bank International six years ago after it nearly collapsed under the bad loans it ran up when it grew rapidly in the former Yugoslavia. Having burnt through €5.5 euros of taxpayers’ money to prop up Hypo Alpe, Finance Minister Hans Joerg Schelling ended support in March 2015, triggering the FMA’s takeover.

This was the first official proposed “Bail-In” of creditors, one that took place before similar ad hoc balance sheet restructuring would take place in Greece and Portugal in the coming months. Or rather, it wasn’t a fully executed “Bail-In” for the reason that creditors fought it tooth and nail.

And then today, following a decision by the Austrian Banking Regulator, the Finanzmarktaufsicht or Financial Market Authority, Austria officially became the first European country to use a new law under the framework imposed by Bank the European Recovery and Resolution Directive to share losses of a failed bank with senior creditors as it slashed the value of debt owed by Heta Asset Resolution AG. 

The highlights from the announcement:

Today, the Austrian Financial Market Authority (FMA) in its function as the resolution authority pursuant to the Bank Recovery and Resolution Act (BaSAG – Bundesgesetz über die Sanierung und Abwicklung von Banken) has issued the key features for the further steps for the resolution of HETA ASSET RESOLUTION AG. The most significant measures are:

…click on the above link to read the rest of the article…

China Warns Officials: Allow Social Unrest, Lose Your Job

China Warns Officials: Allow Social Unrest, Lose Your Job

To be sure, there are always going to be financial and geopolitical landmines and every once in awhile we – and by “we” we’re referring to the market, or the country, or humanity, or whatever collective you want to choose – are going to step on one on the way to ushering in a black swan event.

But when we look out across markets and across the political landscape it’s difficult to escape the feeling that there are more black swans waiting in the wings – so to speak – than usual. There’s the threat of a dirty bomb being detonated in a crowded Western European urban center for instance. Or the chance that Turkey ends up “accidentally” killing a Russian or Iranian soldier while shelling the Azaz corridor. And how about the possibility that China tries to save its economy by chancing a 30% devaluation of the yuan and inadvertently plunges the world into a crisis far worse than 2008?

The interesting thing to note about the third crisis event listed above is that an economic implosion in China may spawn a black swan far larger than that which would emanate from a crisis in the country’s banking sector and/or a deeper devaluation of the RMB.

As we’ve discussed on multiple occasions of late, China desperately needs to purge its economy of excess capacity. The industrial sector is weighed down by too much debt and too little demand, but an acute overcapacity problem prevents the market from getting anywhere close to clearing. Either Beijing moves quickly to ameliorate this, or else a wave of defaults will ripple through the industrial complex on the way to crippling the country’s banking sector, where NPLs are probably at least five times greater than the official numbers suggest.

…click on the above link to read the rest of the article…

Who’s Anti-American?

– Maryland’s State Song

SamJ’accuse…     Illustration by James Montgomery Flagg

Guilty as Charged

BALTIMORE – Yesterday, one dear reader wrote in to say we were “cynical” and “anti-American.”

Today, we rise to defend our reputation… such as it is. Cynical? Nah… We’d need a big dose of positive thinking and earnest optimism to be cynical. According to the Oxford English Dictionary, people who are cynical are “suspicious,” “doubting,” and “skeptical.”

We’re way beyond that. We’re pretty sure that the system is rigged… and rotten. Elections are exercises in solemn deceit. And the Fed’s management of the economy is a mixture of delusion and self-serving scam. We don’t have much doubt about it. That’s just the way it is.

As for “anti-American,” our accuser needs to clarify the allegation. Is he talking about the Deep State? The empire? Or is he talking about the 50 sovereign states… and the Old Republic? Or the language? The culture? Reality TV… the Kardashians… NASCAR racing… Old Faithful and the mighty Mississip’?

No one can be anti-America; America is too many things to too many people. But if he’s talking about the federales who control half our national output… tie us in knots with Obamacare, National Labor Relations Board rules, and all their other dopey programs… and stomp around the world trying to justify their trillion-dollars-a-year security budget…

…if he’s talking about Hillary, Bernie, The Donald, the Bushes, et al… and all the 535 members of the U.S. Congress… and the 2,783,000 zombies on the U.S. payroll…

…click on the above link to read the rest of the article…

 

Has The Market Crash Only Just Begun?

Has The Market Crash Only Just Begun?

Having successfully called the market’s retreat in the fall of 2015, Universa’s Mark Spitznagel is not taking a victory lap as he warns Bloomberg TV that “the crash has only just begun.”

Investors are facing the most binary “let’s make a deal” market in history in Spitznagel’s view: choose Door #1 to bet on Keynesianism, central planners, and monetary interventionism; or Door #2 to bet on free markets and natural price discovery.

“There is massive cognitive dissonance here,” Spitznagel explains as history teaches us that door #2 is the right choice… but it’s not possible to do that today as investors have been coerced to choose door #1, but when door #1 is slammed open “we will see that dreaded black swan monster.”

That is what is going on right now:

“Investors want to go with The Fed when it’s working – like David Zervos… the problem is, when do you know that it is not working?”

“At some point this stops working…”

“the market is going through a resolution process, transitioning from the cognitive dissonance of Door #1 to the harsh reality of Door #2… if everyone were to change doors at the same time, that is a market crash… it can’t be done in a non-messy way.”

Must watch reality check behind the smoke and mirrors we call markets… (we note Mark’s excellent analogy starting at around 3:10)

Stocks Slump After Saudis Threaten Nukes Against “Nefarious” Iran

Stocks Slump After Saudis Threaten Nukes Against “Nefarious” Iran

Earlier this month, a black swan landed in the Mid-East when Saudi Arabia executed prominent Shiite cleric Nimr al-Nimr along with 46 other “terrorists.”

Most of those executed were not Shiites but that didn’t matter. Al-Nimr was a key voice among Saudi Arabia’s dissident Shiite minority and his death reverberated across the Shiite community, sparking mass protests from Bahrain to Pakistan.

Al-Nimr was executed on a Saturday. By Sunday evening the Saudi embassy in Tehran was ransacked and burned and Riyadh had cut diplomatic ties with Iran. The other Gulf monarchies followed suit and by the end of the following week, the stage was set for widespread sectarian strife.

As we wrote in the aftermath of al-Nimr’s execution, the ordeal couldn’t have come at a worse time for the Obama administration. With the countdown to Implementation Day for the nuclear deal under two weeks, the last thing The White House needed was to be thrust into the middle of a dispute between a traditional ally (the Saudis) and a new “friend” (the Iranians).

The Sunni world (not to mention the Israelis) already feared that the lifting of international sanctions against Iran and the attendant cash windfall would strengthen Tehran just as the Ayatollah looks to preserve and expand the so-called Shiite crescent by consolidating his influence in Iraq and bolstering the Assad government in Syria. The money, some critics say, will invariably be channeled to Hezbollah and Iran’s Shiite militias which effectively function as Iraq’s only effective security force. Additionally, the nuclear deal’s opponents wonder if Iran will plow its newfound wealth into the country’s famous ballistic missile program, which is alive and well as demonstrated by the test-firing of the Emad in October.

…click on the above link to read the rest of the article…

“Catalonia Needs Its Own Central Bank”: Spain’s Black Swan Lives As New Catalan President Sworn In

“Catalonia Needs Its Own Central Bank”: Spain’s Black Swan Lives As New Catalan President Sworn In

When last we checked in on Catalonia, Spain’s black swan was splashing around in a desperate attempt to avoid snap elections just three months after the region’s parliament approved a “democratic disconnection” resolution and just four months after Catalans voted in what amounted to a referendum on secession from Spain.

The problem was that although Junts pel Si and the Popular Unity Candidacy (CUP) parties won a majority of the seats in parliament, and although both parties back a split from Spain, the two groups were unable to agree on who should lead the government. The choice was between then-President Artur Mas (Junts pel Si’s leader) or someone else.

Once CUP made it clear that they would not back Mas for President, the prospect of new elections reared its ugly head and the countdown was on to January 11 – the deadline for forming a government. “Lacking a majority in the 135-seat parliament, Mas had been reliant on the support of the pro-secession, far-left CUP group, which has 10 seats.” WaPo wrote in November. “But the CUP has refused to back Mas as regional president, because of his austerity policies of recent years and his party’s links to corruption scandals.”

When national elections held in December proved largely inconclusive, the stage was set for new elections both in Catalonia and for the country as a whole. Because the various parties vying for seats in the national parliament are divided on the Catalan independence bid, politics in Madrid are inextricably bound up with politics in Barcelona, creating an extraordinarily complex dynamic that admitted of no obvious solution.

Well, with the clock ticking, Catalonia resolved its stalemate on Saturday when Artur Mas agreed to stand aside so that Carles Puigdemont can assume the presidency.

…click on the above link to read the rest of the article…

Saudis Boost Gas Prices by 40%, Dismantle Welfare State To Wage War With U.S. Shale

Saudis Boost Gas Prices by 40%, Dismantle Welfare State To Wage War With U.S. Shale

As it turns out, it was better. This year’s deficit is expected to come in at around 15-16% of GDP, considerably below the 20% some analysts feared. For 2016, it looks as though the number should be somewhere in the neighborhood of 13%, broadly in line with expectations.

Be that as it may, the Saudis are boxed in as long as they insist on, i) keeping oil prices depressed, ii) maintaining the riyal peg, and iii) holding subsidies steady. If something doesn’t give with at least one of those imperatives, then the kingdom will continue to burn through its SAMA reserves which fell by $12.55 billion in November from October.

The problem is that deviating from any of the points outlined above has consequences. Allowing oil prices to rise risks putting uneconomic US production back online, dropping the riyal peg would be a significant black swan event for markets and would represent a landmark break with three decades of precedent, and easing up on the subsidies risks creating the type of social unrest that occurred elsewhere in the region during the Arab Spring.

Well it looks like when it came time to choose, the Saudis decided that the people will have to suffer because today, Saudi Arabia raised the price of domestic fuel by up to 40%.

And that’s not all.

Prices for gas, diesel, kerosene, water and electricity were also raised. 

Indeed, some Saudis were looking to fill up before the price hike:

…click on the above link to read the rest of the article…

Waiting to be SKEWered?

Waiting to be SKEWered?

SKEW Goes Pear-Shaped

Back in 1998, at the height of the Russian crisis, the CBOE SKEW Index reached its all time high of 146.88. Previously very high values were seen on the eve of the 1990 recession, and in March 2006 it spiked again when sudden worries about the housing bubble surfaced.

Black-Swan lr“There are no black swans” they said …

Over the past two years, SKEW has begun to act totally crazy, regularly rising to rarely before seen levels. In late 2014 and again in September this year, moves to around the 140 level have become quite frequent. On Tuesday it broke its Russian crisis all time high, spiking briefly to 148.91.

SKEWSKEW spikes to a new all time high on Monday – click to enlarge.

“What the hell is SKEW?” we hear you ask. Here is the explanation from the CBOE, where SKEW lives (or rather, where the options that are used in its calculation live):

“The CBOE Skew Index – referred to as “SKEW” – is an option-based indicator that measures the perceived tail risk of the distribution of S&P 500 log returns at a 30- day horizon. Tail risk is the risk associated with an increase in the probability of outlier returns, returns two or more standard deviations below the mean. Think stock market crash, or black swan. This probability is negligible for a normal distribution, but can be significant for distributions which are skewed and have fat tails. As illustrated in the chart below, the distribution of S&P 500 log returns has a sizable left tail. This makes it riskier than a normal distribution with the same mean and the same volatility. SKEW quantifies the additional risk. 

SKEW is derived from the price of S&P 500 skewness. That price is calculated from the prices of S&P 500 options using the same type of algorithm as for the CBOE Volatility Index (VIX). The details of the SKEW algorithm and a sample calculation are presented in the SKEW White Paper http://www.cboe.com/SKEW .

 

 

…click on the above link to read the rest of the article…

Catalan Secessionists Set To Win Election Amid Record Turnout

Catalan Secessionists Set To Win Election Amid Record Turnout

On Friday we previewed what we said could be the next European black swan.

In short, elections in Catalonia on Sunday were a proxy for an independence referendum.

The outcome is critical for several reasons, not the least of which are i) Spain’s debt-to-GDP ratio could spike to 125% in an independence scenario, ii) Catalonia would likely be forced out of the euro in the event they secede, iii) the impact on social stability is decisively unclear, iv) Catalonia accounts for nearly a fifth of Spanish GDP.

Here are the results, tallied amid record turnout.

  • JUNTS PEL SI WINS CATALAN ELECTION
  • JUNTS PEL SI WINS 63-66 OF 135 SEATS IN CATALONIA: EXIT POLL
  • CUP WINS 11-13 OF 135 SEATS IN CATALONIA: EXIT POLL
  • SOCIALISTS WIN 14-16 OF 135 SEATS IN CATALONIA: EXIT POLL
  • PP WINS 9-11 OF 135 SEATS IN CATALONIA: EXIT POLL
  • PODEMOS-BACKED GROUP WINS 12-14 OF 135 SEATS: EXIT POLL
  • CATALAN SEPARATISTS CLOSE TO 50% OF VOTES: EXIT POLL

*  *  *

Full preview

Earlier this week, we asked why multiple armored vans were parked outside the Bank of Spain’s Barcelona branch.

The convoy would have been curious enough on its own, but the fact that the vehicles were stationed in the Catalan capital ahead of what amounts to an independence referendum piqued our interest and we asked if perhaps the Bank of Spain was preparing for any and all contingencies. According to the Bank of Spain itself, our suspicions were unfounded as “nothing extraordinary happened [on Wednesday] in the building of Banco de España in Barcelona.”

“By the way,” the central bank added, “there is no gold in this site of Banco de España in Barcelona.”

Maybe not, and perhaps nothing was amiss, but this Sunday’s plebiscite in Catalonia is worth watching closely as it could very well represent the next European black swan.

…click on the above link to read the rest of the article…

China’s “Credit Mystery” Deepens, As Moody’s Warns On Shadow Financing

China’s “Credit Mystery” Deepens, As Moody’s Warns On Shadow Financing

Last month, we took a detailed look at what we said could be a multi-trillion yuan black swan.

In short, one of China’s many spinning plates is the country’s vast shadow banking complex which allowed local governments to skirt borrowing restrictions leading directly to the accumulation of debt that totals some 35% of GDP and which has channeled trillions into speculative investments via the proliferation of maturity mismatched wealth management products.

One of the problems with the system is that it allows Chinese banks to obscure credit risk.

As Fitch noted earlier this year, some 40% of credit exposure is effectively carried off balance sheet in China’s banking sector, making it virtually impossible to assess the extent to which banks are exposed. When considered in combination with the unofficial policy whereby the PBoC forces lenders to roll bad debt thus artificially suppressing NPLs, a picture emerges of a system that’s decidedly opaque. Here’s what we said back in May:

The percentage of  loans which are not yet classified as non-performing but which are nonetheless doubtful is much higher than the headline NPL figure and in fact, [Fitch] seems to suggest that some Chinese banks (notably the largest lenders) may be under-reporting their special mention loans. But ultimately it’s irrelevant because between bad assets that are ultimately transferred to AMCs, loans that are channeled through non-bank financial institutions and carried as “investments classified as receivables”, and off-balance sheet financing, nearly 40% of credit risk is carried outside of traditional loans, rendering official NPL data essentially meaningless in terms of assessing the severity of the problem.

Well don’t look now, but according to Moody’s, the practice of obscuring credit risk using one or more of the methods delineated above and outlined in these pages on any number of occasions looks to be getting worse. Here’s Bloomberg:

 

…click on the above link to read the rest of the article…

Counterintuitive: (Some) volatility is good for you, stability not so much

Counterintuitive: (Some) volatility is good for you, stability not so much

With stock markets around the world plunging and commodity prices in free fall, it seems appropriate to return to a theme which I’ve taken up previously: That a certain amount of volatility is good for humans and the systems they build, and that attempts to stifle the natural and healthy volatility of a system can lead to greater and even catastrophic volatility in the end.

All of this runs counter to the propaganda with which we are regaled on a daily basis. For example, investors are told that the lower the volatility of their portfolios, the lower the risk. But, in 2008 that turned out not to be true. More recently, as volatility in the widely watched S&P 500 settled down to historic lows this year, investors believed that the magic of low volatility was here to stay. Central banks–through their periodic interventions when markets began to fall–had somehow engineered a no-lose situation for investors. It was going to be clear sailing ahead for…well, forever if you listen to Wall Street.

The history of volatility in markets and in life suggests that high volatility lies just around the bend after a prolonged period of low volatility. It is impossible to say what would trigger the kind of crash we saw in 2008. For now, the Chinese stock market crash and recent negative economic news in China and the United States have unnerved many investors. The Chinese stock market is now more than halfway to a 2008-style meltdown. Stocks in Europe and the United States have finally started to fall in earnest after holding up and even advancing in the face ofmajor declines in emerging markets such as Brazil, Indonesia, Malaysia, and Turkey. Money rushed from the emerging markets to major developed economies looking for–you guessed it–stability.

 

…click on the above link to read the rest of the article…

Another Black Swan? Syriza Outcasts Form New Political Party, Will Push For Grexit

Another Black Swan? Syriza Outcasts Form New Political Party, Will Push For Grexit

Once upon a time, Panagiotis Lafazanis had a plan to save Greece.

On July 14, just two days after Prime Minister Alexis Tsipras sold out the Greek referendum “no” vote by agreeing to a shockingly punitive bailout deal in Brussels, Lafazanis convened a meeting of Syriza party “rebels” at a hotel in Athens. There, he allegedly attempted to convince his fellow lawmakers to storm the Greek mint, seize the country’s reserves, and arrest central bank governor Yannis Stournaras. “Obviously, it was a moment of high tension,”one activist who attended the secret meeting later told FT.

Yes, “obviously.” Equally obvious once news of the meeting leaked was that Lafazanis would not be Energy Minister for much longer and sure enough, he was sacked by Tsipras as the premier sought to pave the way for a series of votes in parliament on bailout prior actions.

Earlier this month, as rumors started to circulate that Tsipras might not have the support to survive a confidence vote, Lafazanis announced he was forming his own political party, which was funny right up until Thursday when Tsipras resigned, setting off a series of events that will see Greeks head back to the polls in September. Now, Lafazanis has seized the opportunity to convince 28 other Greek lawmakers to join him and his new party which will be called “Popular Unity,” an ironic choice, given that it grew out of the desire to split with a party leader who had become decisively unpopular among Syriza’s Left Platform.


Popular Unity head Lafazanis says new party supports orderly and does not accept being blackmailed by Merkel & Schäuble.

Progress in an Uncertain World

Progress in an Uncertain World

Strong Towns is often accused of offering doom-and-gloom diagnoses of problems but being light on solutions. “You don’t tell us what we can actually DO to fix our insolvent cities,” goes the response. “You’re just so negative all the time.” This is not true, but I also don’t think it’s true that these criticisms are made in bad faith.

Rather, I think we have articulated a vision of what should be done to build Strong Towns, and done so in great detail. But that vision is heavy on experimentation and small-scale risk-taking (with potentially great rewards). It is heavy on civic engagement and grassroots action. And it is notably light on technocratic policy interventions: to the extent we talk about policy, it’s often about what policy makers should NOT do, not what they should.

There is a good reason for this, and those with a technocratic mindset (i.e. that the problems of cities will be fixed by top-down, data-driven policy tinkering) would do well to consider it.

The City as Ecosystem

Chuck occasionally has called mathematician and risk analyst Nassim Nicholas Taleb the “patron saint of Strong Towns thinking.” I strongly urge anyone who has not read Taleb to pick up his books—Antifragile if you’re only going to read one, but also Black Swan and Fooled by Randomness. They are deeply intellectual and cross-disciplinary, but not overly wonky: accessible and entertaining for non-academic readers.

The central thesis of Taleb’s work is that complex systems are inherently unpredictable and prone to “Black Swan” events: unforeseeable and unprecedented cataclysmic changes. It’s not that we haven’t figured out yet how to completely predict their behavior; it’s that it is far from even mathematically possible for us to do so. Think of a natural ecosystem. Global weather patterns. The stock market. The human body. A city.

…click on the above link to read the rest of the article…

 

The 8 Trillion Black Swan: Is China’s Shadow Banking System About To Collapse?

The 8 Trillion Black Swan: Is China’s Shadow Banking System About To Collapse?

“Wealth management products in China have come under the spotlight after a series of missed payments raised concerns over the shadow banking sector that often directs credit to firms shut out from bank lending or capital markets,” Reuters said in February, after reporting that CITIC (China’s top brokerage), was looking at ways to repay investors after the issuer of one of the wealth management products the broker sold missed a $1.12 million payment to investors.

That news came a little over a year after the now infamous “Credit Equals Gold #1 Collective Trust Product” incident and a subsequent default scare on a similar product backed by loans to a struggling coal company.

Although wealth management products and CTPs (which differ from WMPs) are often described as “murky” and “opaque”, the basic concept is fairly simple. WMPs are marketed to investors as a way to get more bang for their buck (er.. yuan) than they would with bank deposits. Funds from these investors are then invested at a higher rate. If the assets investors’ money is used to fund run into trouble, that’s not good news for WMP investors. Simple.

The main issue here is the sheer size of the market. As FT notes, “in 2010, as regulators tried to rein in the explosion in bank credit resulting from the country’s Rmb4tn economic stimulus plan, banks turned to trusts to help them comply with lending controls.” So essentially, trusts helped banks offload credit risk at the behest of the PBoC. Here’s the process whereby banks use trusts to get balance sheet relief:

…click on the above link to read the rest of the article…

 

 

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